Sunday, April 20, 2014

The Short-Term Interest Rate Death Spiral Continues

The following chart shows the natural log of MZM Own Rate (the interest rate the liquid money supply is earning). By using natural logs, exponential growth (or in this case decay) can be seen as a straight line.

Click to enlarge.

There is now $12.4 trillion of liquid money supply attempting to earn interest (up $716.2 billion from just a year ago).

Is it any wonder that short-term interest rates are so low? As of March 2014, MZM is now earning a new record low of just 0.081% (81 cents per thousand dollars per year).

Perhaps I need to do an analogy here.

If I had 12.4 trillion rolls of toilet paper and I started loaning it out to my neighbors, then how much "sheet" interest could I realistically expect to earn per roll? How much negotiation power would I have if they noticed that my hoard had grown by 716.2 billion rolls just over the last year? (Keep in mind that they would notice, as it would clearly not all fit within my house. Some of it would no doubt spill out onto my yard, lol. Sigh.)

This is a feeble analogy by the way. Toilet paper is continually being both created and destroyed. There's always a need for more. What's destroying the money supply though? It would seem that we generally make more whether we need it or not.

If we can't be prosperous with $2.91 trillion earning 2.659% (annual averages in 1995) then perhaps we can be prosperous with $12.4 trillion earning just 0.081% in 2014? Is that the long-term plan more or less?

1995: $2.91 trillion x 2.659% = $77 billion

2014: $12.4 trillion x 0.081% = $10 billion

Note that the total interest paid on the total liquid money supply was nearly 8x more in 1995 than it is now.

Well, you know what they almost say. It takes trillions (money) to make billions (money)! And if we keep it up long-term, then someday they might even say that it takes quadrillions to make millions! Won't that be a hoot for the savers of the future!

Needless to say, I'm sticking with my long-standing theory (when I turned permabearish in 2004) that it is becoming harder and harder to make money off of money.

The short-term interest rate death spiral continues, not that many seem to notice. When will interest rates rise? That's what the financial "experts" keep asking. I have decidedly different questions. When will interest rates stop falling? What could cause them to stop falling? Seriously. It's like a bottomless pit of saving despair.

This is not investment advice.

Source Data:
St. Louis Fed: Custom Chart


Troy said...

is a link to a recent speech from the previous BOJ head guy, the Friedman acolyte who refused to do what Kuroda's doing now.

I didn't see anything all that informative in it, and I don't think he understands economics all that well (I assume everyone who doesn't understand the critical importance of housing and real estate in general is not seeing the real picture), but the charts in the annex are interesting.

On the savings front, I really wish I'd bought 20 pairs of the previous generation New Balance 608s in 2010 when I had the chance.

Not for the price per se but the build quality. Wore my new pair of 608v3s, and ugh. My sister has like 80 pairs of shoes, so at least she's not going to wear them all out too soon.

Though people said the 2010 version was crappier than the 2000s versions. So it goes.

dearieme said...

I continue to take advantage of "loss leader" opportunities. I've just opened an account that pays 4% p.a. (vs our CPI inflation rate of 1.6% p.a.). It'll only last a year, of course, but next year there might be another loss leader around. And if not, Gold.

Rob Dawg said...

"Note that the total interest paid on the total liquid money supply was nearly 8x more in 1995 than it is now."

Good thing that stuff is not hot money. I mean if it were all able to reallocate over a period of several months in a rate shock or worse all at once with little loss of interest to penalties then things could get out of control.

Luke The Debtor said...

US central bankers do not want saving, they want spending - they want inflation. However, two decades of Japanese history show that low-interest rates (or falling interest rates) are not exactly inflationary.

Mr Slippery said...

I've never met a death spiral I didn't like, including the interest rate variety.

As much as I disagree with Fed policies, they are stuffing about $1500 a month in my pocket through a lower mortgage payment. :shrug:

Stagflationary Mark said...

Speaking of death spirals, apologies for going AWOL again. The Shingles, although looking visibly better from a healing perspective, have entered pain phase two it would seem. Blisters have popped.

Two weeks in, it's been a Vicodin and calamine lotion kind of day. Sigh.

This too shall pass. Don't expect much from me in the short-term though.

Anonymous said...

Mark - hope it goes as well as possible. Doesn't sound very good.

Re: RD's hot money concept and the 12.4 trillion. Assuming the money printing causes some glimmer of real inflation, then isn't it possible that some or a lot of this money will try and jump into commodities, or property, or even stock as quickly as possible? I presume everyone is watching the inflation numbers in order to gauge when to jump.


Sustainable Gains said...

'bout time we stopped calling it money and referred to it as credit. Money, in my opinion, is stuff you can hold in your hand and it can't be created or destroyed at will.

The stuff we're talking about here is credit. Credit is not real, it's a loan. If loans go bad, credit is destroyed. So that answers this question "What's destroying the money supply though?"

The next question we might ask is whether the credit supply is being properly accounted for. There are many incentives for holders of bad bonds (lenders of bad loans) to misreport, not least of which is that if even a small fraction (3%, 5%) of the loans are bad, the highly leveraged holders are themselves insolvent. Unreported financial losses are also known as "bezzle", and there's always a certain amount. It grows during market downturns, and comes to light only when folks are forced to pay off their own creditors and shareholders.

It's probably not an accident that the 2009 bottom in the stock market took place when Congress pressured the FASB to waive banks' legal requirement to mark their assets properly. A lot of paper out there still suffers from a certain degree of fiction in its reported value.

Meanwhile, over in China...

Troy said...

Assuming the money printing causes some glimmer of real inflation

"no wage inflation, no inflation" is my thesis.

shows weekly hours are down ~10% from 1970.

shows the current employment level has only recovered to the 1990 recessionary level.

Basically we need to see a full 1990s expansion from here to get to the inflationary period of the late 1990s.

But we've already pocketed that ball I think.

The ~$3T going to the top 5% of the economy isn't going to raise the prices at Walmart and McDonald's.

The bottom 75% of the economy makes less than than the top 5%, and the former have more rents beaten out of them by the latter, too, in housing, healthcare, and fat, fat corporate profits.

Our economy is getting pretty dysfunctional now.

blue line is total mfg, info, and military jobs

red is 1/6th the working age population, showing the hollowing out of our labor economy since 1980.

shtove said...

OMG - is shingles fatal?

I've already buried Maxedoutmama.

Stagflationary Mark said...

Once again, I apologize for being AWOL.

At the risk of repeating myself, don't get Shingles!

It seems to be healing but...

I'm now on 2+ Vicodin per day (rationing them), ~1200mg of Ibuprofen, and ~3000mg of Tylenol. Nearly 3 weeks in and it barely makes a dent.

It's bearable but I definitely wouldn't want to have it long-term. Gives me a greater appreciation (and sympathy) for what chronic pain sufferers need to endure.

CP said...


You need to get back to posting. Bonds are on fire!!


Troy said...

for what chronic pain sufferers need to endure

yeah, 40-odd years in here and I can't imagine.

Couple of mildly painful episodes but nothing lasting more than a couple of days of hassle.

Shingles vax is now on the to-do list . . .

Rob Dawg said...

Don't let the blistards get you down.

shtove said...

Stagflationary Mark,

When you get better please chart your posting frequency against 10y yields.

Stagflationary Mark said...

Just a quick note to let you know I'm not dead (yet).

It's been 4 weeks so far.

Don't get Shingles! The "blistards" are mostly gone but the nerve pain remains. Sigh.

Assuming there is correlation here, the 10-year yield may have much further to fall, lol. Sigh. :(

Troy said...

Krugman actually hit on the points of my thesis square today.

Falling interest rates post-Volcker, rising (to the point of unsustainability in 2008) consumer debt, and declining pop growth. The latter's presentation was somewhat new to me:

showing the working-age population grew ~13% each decade of 1990 - 2010.

But 2010-2030 we're going to see ~3% per decade expansion!

is a chart of this Great Flattening . . .

people are really under-appreciative of the immense expansion the economy underwent in the 1970s . . . one of the most curious stats is that the economy gained 20M jobs each decade of the 1970s through 1990s.

But we're still 13M jobs away from the high-point of 2000, showing that growth trend is broken.

Troy said...

^ (+13M away from 20M over the high-point of 2000)

Watchtower said...

Hang in there Mark!

As King sez in the film Platoon: "Just keep your pecker hard and your powder dry and the world will turn"

Stagflationary Mark said...


Employment is certainly going to be interesting to watch over the next few decades. I am not optimistic.

Stagflationary Mark said...


I am in the wrong movie!

Me have Shingles long time.

It was a three Vicodin day. Fortunately, they prescribed more. I now have 15 left.

Believe it or not, I continue to be very thankful to have been born when and where I was. Many throughout history would not have had Tylenol, Ibuprofin, Vicodin, and so on. That's hard to imagine. I think my sanity would be in jeopardy without the help.

Sustainable Gains said...

Hang in there... we miss you. I even had to reactivate my account at Hoocoodanode in order to properly satisfy my econ-skeptical itches...

Anonymous said...

Um, is Maxedoutmama ok? I just hope shtove was joking about that.

AllanF said...

Hey Mark,

Good luck and hang in there. But I can't not mention...

Be careful with Tylenol. Doubly so if you're taking Vicodin!

The FDA, in a classic display of bureaucratic wisdom, mandated that a liver toxin (AKA acetaminophen, AKA Tylenol) be added to hydrocodone so as to dissuade addicts from abusing it. Apparently the FDA are the only ones unaware that junkies are not paragons of what the economists like to refer to as rational actors.

It's easy enough to precipitate out the acetaminophen, but, as I understand it, the resulting solution of hydrocodone is some extremely bitter medicine.

Perhaps mix it into your adult meal-replacement drink? :) I'd be curious what you learn.

Best wishes.

fried said...

I keep checking to see if you're feeling better. Its been a hard spring for you...I can only send along my best wishes.

Troy said...

real GDP red, retail jobs blue, 100 = 1948.

Shows real GDP is up 30% since 2000, but retail employment is flat.

Funny, that.

Stagflationary Mark said...

I have decided that Shingles isn't all that fun (especially today when I could be out hiking in the sunshine). I know. It's a very controversial stance, lol. Sigh.


I've been keeping the acetaminophen at acceptable levels and account for the 325mg in Vicodin (I either take a 500mg Tylenol *or* 1-2 Vidodin every 4 hours).

To put in in perspective, I've taken a grand total of 41 Vicodin in 34 days. That's not nearly enough to get me hooked on hydrocodone. It takes roughly 3 in a day to offer enough pain relief to matter much anyway. That said, today will be another 3 Vidodin day though (slept poorly). Yesterday I went without. It's all about rationing. Sigh.

That's in addition to the twice a day Aleve I now take (in contrast to the Ibuprofen I was taking).

So far, so good on the side effects. My stomach has handled it fairly well. I've been eating a 90 calorie fiber bar with nearly every dosage (sometimes with a glass of milk). And yes, the meal replacement drinks (Ensure) have been gentle as well.

I'd really like to not take any acetaminophen if I could help it. It's the only drug that really concerns me. 3000mg in a day barely makes a dent. That said, the dent is worth the risk to me. The Shingles pain is not trivial. I'd rank it right up there in the moderate to severe category, and 5 weeks in it definitely wears on me.

I'm finally starting to see some modest improvement though, which is nice. I've recently resorted to ice packs, which also seem to help some. It's kind of odd. The pain feels like a cold burning pain (gives me goosebumps down my left arm) so putting ice on it doesn't seem like the greatest of plans. It helps though. Go figure.

I'd guess, based on current recovery trajectories, that I'll be feeling better in a week or two. It's really hard to say though. Some people experience the pain long after the rashes are gone (and in some cases for a year or more). I still have some sections of skin that are still completely dead to the touch (although those sections appear to be shrinking thank goodness).

Don't get the Shingles!

Mr Slippery said...

Hey Mark,

This thing sounds really bad. Was there some trigger for it or is it just something that emerges randomly if you've had the chicken pox? I've had it so I know I am vulnerable. Hope you get better soon and the pain subsides.

Stagflationary Mark said...

Mr Slippery,

I believe the trigger was a weakened immune system brought on by poor sleep.

Another pointed out to me in a private email that it might be a Vitamin D deficiency as well, which makes a lot of sense considering that I hadn't been in the sun much in the past year due to that nasty sprained ankle last summer.

It's ever so slowly healing. I'm finally able to sleep on my left side although there is additional pain when doing so.

I'm heading back to the doctor later today. I will hopefully leave with yet another Vicodin prescription. I took 2 today. It only dulls the pain temporarily, but it is welcome relief.

To put it in perspective, I was given a prescription for pain relief for my ankle last year if memory serves. I never filled it. I didn't take over the counter pain killers either. I generally don't like taking medications. All bets are off with Shingles though. I set an alarm to wake me up just to take 500mg of Tylenol (every 4 hours, in addition to an Aleve every 12 hours). It doesn't help much but it is better than nothing.

I don't want to make my Shingles sound worse than it is though. It is relatively bearable. It just wears on a person. That's all.

It's 6 weeks and counting. I can't even estimate when I'll be done wanting pain relief.

It's hard to describe the improvement. Is a serious sunburn over 12 square inches half as painful as a serious sunburn over 24 square inches? Is 1 stab wound half as painful as 2 stab wounds?

I think not. In theory, my Shingles pain is about half of what it once was. In practice, not really! It's still plenty uncomfortable. I wouldn't be able to focus well doing a job. Shingles fills at least half of my thoughts, in one form or another.

Anonymous said...

Hi Mark,

Hope the pain eases off soon. Had to check in to see how you are. Was worried.

Rest and no stress helps. Pain causes stress, so take the meds as needed. You are right to be very careful with the addictive meds.


Stagflationary Mark said...


I'm hanging in there. Progress is clearly measured in weeks (as opposed to days). I have cut back on the Tylenol a bit.

Yesterday was a yard work day.

The good news is that I was able to do it.

The bad news is that I had to take 2 Vicodin in the aftermath. There's still plenty of pain.

That said, I've got 16 left (out of the latest round of 20 pills) and it's been roughly a week since I've "needed" any. No danger of getting addicted to it. I doubt I'll be wanting more once it is gone.

I also managed to do an hour of light/moderate stair climbing the day before. It was a bit painful but tolerable (without a shirt on anyway) . I couldn't have done that a few weeks ago, so things seem to be getting better (at a very slow pace).

Stagflationary Mark said...

I should point out that the vast majority of my time is still spent laying on the couch or laying in the relatively painfree bathtub. It's been 7 weeks so far.

I'm typing this from the couch (using the Playstation 3).

I feel sorry for our pet bird. She's had a lot of alone time lately. She's in the room with my computer. I'm generally in there a lot (posting charts and reading email), except when I've got Shingles apparently. Sigh.

fried said...

just checking in to see how you are doing. Glad there has been some pain relief, even i only incremental.
I am sorry that it has been such a long, slow effort.
Again, all my best wishes and hopes that things continue to improve for you.

Stagflationary Mark said...



I should be back to posting again at some point.

If it was my job, then I could start posting more now. Since it is just a hobby though, I am not properly motivated yet. The pain level needs to drop just a bit more.

Baby steps.

Anonymous said...

This may perk you up.

negative interest rates.

Watchtower said...
This comment has been removed by the author.
Watchtower said...

Not for sure where that link will take you Mark, but the jist of it is that we are getting a new 'Borderland's The Pre-Sequel' on October 14, 2014...w00t!

Mr Slippery said...

Hey Mark,

Just checking in to see if the shingles is still tingling. If you are looking for something to watch, I recommend the 2nd season of American Horror Story: Asylum. I thought the 1st season was weak. Third season, Coven, was alright. OTOH, it is not for everyone, and you may not like it.

I may have broken my first bone ever on a hike two weeks ago. Still some swelling around the small finger metacarpal on my right hand. No apparent blood or bruising so I'll give it another week or so. Just taped it to my ring finger.

Markets are surreal to me. Negative GDP, all time stock highs with declining rates don't seem to compute. I have seen some local growth but not sure it is sustainable.

Get well!

Stagflationary Mark said...


From your link:

There are also some powerful structural reasons for believing that interest rates are going to remain permanently low, not least the economics of an ageing society.

I'm not a believer in permanently low, but during the remainder of my lifetime seems more than possible! (And I'm hoping to live another 30+ years, Shingles notwithstanding.)

Stagflationary Mark said...


I have burned out a bit on the Borderlands franchise. I have been playing a lot of Diablo 3 (for PS3) though. Can't really explain why. It is relatively mindless fun I guess (and with pain it seems easiest I guess).

Stagflationary Mark said...

Mr Slippery,

Sorry to hear about your finger.

Shingles still has me in its very painful grasp. I did manage to mow the front yard today (technically yesterday, still up). Wasn't quite as uncomfortable as last time (or the time before that). So that's good.

I also took Honey on a 1.5 mile walk around the neighborhood. That was this season's first. That said, it was a 2 soaking bath day (pain relief).

I'm determined to go hiking this summer (pain or no pain). I tried on the water backpack a few days ago. I think I could wear it but the pain increases when I sweat, so not sure what a serious hike would do. I probably won't push my luck until July. (And hopefully I'll be back to blogging by then too.)

Have I mentioned lately that it might be best *not* to get Shingles? It is possible to get it again. One way is to probably stress out rationally over the possibility of getting it again, lol. Sigh. :(

Hey, it isn't all bad. If the pain does go away then I'll have a renewed appreciation for life.

All right, sweethearts, what are you waiting for? Breakfast in bed? Another glorious day in the Corps! A day in the Marine Corps is like a day on the farm. Every meal's a banquet! Every paycheck a fortune! Every formation a parade! I LOVE the Corps! - Sgt. Apone, Aliens (1986)

Mr Slippery said...


There is a shingles vaccine and I am considering asking my doctor if I should get it, even though the CDC says it for 60+ (I am 50). It apparently reduces, but does not eliminate the risk.

Stagflationary Mark said...

Mr Slippery,

One reader (in a private email) suggested that I may need more Vitamin D and that a deficiency could have weakened my immune system.

It would definitely make sense.

1. I live in the Pacific Northwest and we get very little sun in the winter.
2. My ankle sprain last year kept me indoors a lot more than normal.
3. I had been drinking less milk. I started using Almond Milk about a year ago (just prefer the taste on cereal).
4. I'm a night person.

I'm having my Vitamin D levels tested soon. In the meantime, I'm taking a daily multivitamin and a bonus Vitamin D pill (250% RDA). I intend to never stop.

You are probably at risk only if your immune system is compromised. Are you getting plenty of sleep? I was not. How do you feel? I felt run down heading into it (partly because I wasn't getting outside much). What is your stress level? Mine was high (but is falling, even with Shingles).

In my opinion, my seriously sprained ankle last July triggered unexpected consequences. It had an impact on my immune system. I went from feeling great to feeling down. Hard to watch an entire hiking season pass me by.

I hope that's the trigger anyway. I'll be getting a physical soon which may help determine the cause.

D. said...

MaxedOutMama left comments recently on an Althouse post. I think it's really her because the name links back to her profile.

Stagflationary Mark said...


Let's hope medical reasons don't explain her absence too! 4+ months is a long time to go without a sighting.